February 2012

Booz Foresight

Let's Make a Deal

Do you know a good deal when you see one? It’s no secret that most mergers and acquisitions fail to live up to expectations. I’ve seen numbers — we all have — that say that more mergers destroy shareholder value than increase it, or that 7 out of 10 acquisitions are financial disappointments. And everyone knows that post-merger integration never goes as smoothly as planned.

The big deal with deals is “fit” — finding a connection that will make the acquired company perform better in its new home than it did before. And the big deal with fit is capabilities, a fact demonstrated by an outstanding analysis led by Strategy&'s Gerald Adolph, J. Neely, and Cesare Mainardi. Studying 320 deals across eight industries, Adolph, Neely, and Mainardi show that deals done to enhance or leverage capabilities produce returns 12 percentage points higher than acquisitions made for other reasons (e.g. to diversify). That extraordinary difference in performance makes “The Capabilities Premium in M&A,” in the Summer issue of strategy+business, a don’t-miss article.

Let me call your attention to three other important pieces of work recently published by Strategy& (Formerly Booz & Company).

“It’s tough to make predictions, especially about the future.” That statement (supposedly by New York Yankees catcher Yogi Berra) rings truer today than ever: As business becomes more global, companies are more and more likely to encounter “black swans’’ such as natural disasters or debt crises; as business becomes more interconnected, the magnitude of these strategic shocks has increased. Black swans are by definition unpredictable. But you can prepare for them, using a powerful technique called “disrupter analysis,” which Matthew Le Merle describes in his eye-opening viewpoint, “Are You Ready for a Black Swan? Stress-Testing the Enterprise with Disrupter Analysis”.

That interconnectedness is, of course, caused in large part by digitization, the most visible of the world’s megatrends. Our digital future is already here, but (as the novelist William Gibson said) it is unevenly distributed. Strategy&’s “digitization index,” developed by a team led by Roman Friedrich, for the first time anywhere charts how far the digital revolution has advanced in different industries. It reveals some startling differences, for example between the consumer goods industry and the retailers on whom it depends. “Measuring Industry Digitization: Leaders and Laggards in the Digital Economy” is an invaluable benchmark against which to measure your own company’s digital development, and — quite possibly — a map of where the digital revolution will erupt next.

Every year, Strategy&'s North American partners prepare an analysis of worldwide industry trends and what they mean for clients — “Industry Perspectives,” as we call them. They’re designed as briefings for client executives: a summary of major threats and opportunities facing an industry, and the firm’s view of how the most capable companies will address them.

Best wishes,

Tom Stewart
Former Chief Marketing & Knowledge Officer

 

In this issue

The Capabilities Premium in M&A The Capabilities Premium in M&A
by Gerald Adolph, Cesare Mainardi, and J. Neely
A new Booz & Company study of inorganic growth strategies shows that deals made to enhance or leverage capabilities consistently outperform other mergers and acquisitions. In analyzing more than 300 transactions in eight industries, and in looking at successful serial acquirers (“Pac-Man” companies), the same conclusion holds: Deals made with a capabilities perspective are far more likely to generate value over time.learn more >

 

download Are You Ready for a Black Swan? Stress-Testing the Enterprise with Disrupter Analysis
by Matthew Le Merle
Too often, the boards and leaders of large companies are unaware of the risks involved in black swan events, unnecessarily exposing their organizations, their shareholders, and themselves to grave consequences. The solution to this problem is disrupter analysis.download (1.0mb, PDF) >

 

download Measuring Industry Digitization: Leaders and Laggards in the Digital Economy
by Roman Friedrich, Matthew Le Merle, Florian Gröne, Alex Koster
The pace of digitization is picking up rapidly but the speed at which digitization is taking place varies a great deal from industry to industry. To gain a better understanding of the relative degree to which digitization is transforming different industries, we have created the Industry Digitization Index. Whether they are currently digitization leaders or laggards, all industries can benefit by investing in the input, processing, and output capabilities needed to extend their digital footprints throughout their business ecosystems.download (601mb, PDF) >
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